ANA Study Reveals Interest In Different Agency Compensation Models

Over 40 Percent of Marketers Contemplating a Change to Their Agency Compensation Method Cite Need for Simpler Administration

Today's rapidly changing marketplace, diverse media environment and a move for marketing accountability, are causing a rethinking in appropriate agency compensation models. This trend is foreshadowed by a slight uptick in compensation models from fee-based methods back to commission- based, finds the 14th triennial Trends in Agency Compensation study from the ANA (Association of National Advertisers). The study also found that only 25 percent of respondents are "very satisfied" with their current agency compensation approach. Of those respondents who are contemplating a change to their agency compensation method, more than 40 percent identified simpler administration as a reason for making the switch.

The survey found that the use of performance incentives sharply increased this year, especially among the larger advertisers. Nearly half of the marketers indicated that they use performance incentives with at least one of their agencies. Today there is much discussion about value-based compensation models, the negotiated value of a mutually-agreed set of business results or deliverables. Although in this year's survey only 3 percent of respondents indicated that they employ value-based compensation for any of their agencies, changes in compensation take time and this trend, combined with the increase in performance incentives, indicates that more advertisers and their agencies are holding discussions about overall marketing performance measurement and accountability.

"New media is changing the way marketers look at everything in their portfolio, including compensation for their agencies," said Bob Liodice, President and CEO of the ANA. "As the industry continues to shift, marketers and agencies will need to work together and communicate openly to identify the right method of payment that works for both sides. By analyzing the trends in this area every three years, the ANA is able to better understand what improvements and changes need to be made to address this difficult issue on behalf of our membership."

The study also showed that the slight increase in commission-based compensation was driven by media agency services. Today's complex digital media makes it difficult for media buying services to be compensated with a precise fee, leading to many media buying agencies either working exclusively for commissions or in combination with fees for non-commissionable activities for planning and buying online and other forms of "new media."

The study also identified the following trends as compared to the 2003 study.

There was a significant increase in the number of respondents who were uncertain what impact incentives had on their overall campaign

The number of respondents receiving detailed agency cost break-outs (e.g., overhead, profits, etc.) declined from the last survey.

The number of respondents who conduct an audit of their agency's media spending decreased.

Triennially for the past 42 years, the ANA has fielded this unique and comprehensive agency compensation trend survey which offers insight and perspective not found in any other report. Ninety-eight ANA members responded to the 14th ANA Trends in Agency Compensation study. The online survey was open to responses between December 2006 and July 2007 and was fielded for the ANA by Phoenix Marketing International. The responses represent a total of 181 different agency agreements. The full study is available for purchase at: /publications/pubreleases/new.